Light At the End of the Bailout Tunnel

The government's rescue of companies and financial markets is beginning to look far less expensive than or long-lasting than once feared. The treasury Department officials say the tab will be about $89 billion, which includes the Troubled Asset Relief Program, capital injections into Fannie Mae and Freddie Mac, loan guarantees by the Federal Housing Administration and Federal Reserve moves such as buying mortgage-backed securities and propping up the commercial-paper market. It is optimistic that AIG will be on its own within a year. AIG is on track to repay its loan to the Fed through asset sales that will raise $51 billion.

The treasury is planning to sell its $32 billion stake in Citigroup. GM plans to repay its $6.7 billion government investment. Both companies may be free of government strings within the year.

It was only a year ago that the Congressional Budget Office and Office of Management and Budget estimated that the overall bailout would cost more than $250 billion dollars. Treasury Secretary Timothy Geithner said last month that the bailout will cost less than 1% of GDP. The $89 billion projection is less than the cost of the savings-and-loan crisis in the 1980s and early 1990s which amounted as much as $3.2 of GDP.